Reporter Skeptical Chrysler-Fiat Deal Will WorkThe Obama administration announced Monday that Chrysler must strike a deal with Italian automaker Fiat — or another manufacturer — in the next 30 days or lose its government loans. David Kiley, senior correspondent in BusinessWeek's Detroit bureau, says he's "very skeptical" Chrysler and Fiat can actually make a deal work.

From Planet Money

President Obama took a hard line Monday with General Motors and Chrysler, setting tough conditions for another government bailout and raising the possibility of a structured bankruptcy to get the companies on the road to profitability.

Obama said his auto task force found that the companies' plans for restructuring were insufficient to warrant a bigger financial commitment by taxpayers. He also said that GM would be under new leadership as the company struggles to redefine itself.

"We cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies — and this industry — must ultimately stand on their own, not as wards of the state," Obama said.

But the president also threw the automakers a lifeline, announcing a raft of incentives to help GM and Chrysler sell cars. They include government-backed warranties, tax incentives to car buyers, the release of funds to buy cars for the government's fleet and a possible "scrappage incentive" trade-in program for less reliable older cars.

In a statement, former GM chairman and CEO Rick Wagoner said administration officials asked him to step aside Friday when he was in Washington for a meeting.

Fritz Henderson, GM's president and chief operating officer, will lead restructuring efforts as the company's new CEO. Wagoner said Henderson was a good choice for the job.

"GM is a great company with a storied history," Wagoner said in his statement. "Ignore the doubters, because I know it is also a company with a great future."

In December, the Bush administration approved $17 billion in federal funds to help GM and Chrysler survive. But continued government assistance was contingent upon the companies submitting viable restructuring plans to the Obama administration.

Last week, Obama said carmakers sell 14 million vehicles in an average year, but that number has dropped to 9 million.

The president gave GM 60 days to win concessions from unions, creditors and others and consolidate unprofitable brands. Obama said the administration would provide both working capital and assistance during the 60-day window.

In the case of Chrysler, Obama said the company must have a partner to stay in business. He gave Chrysler 30 days to reach a merger agreement with Fiat, which has agreed to build fuel-efficient cars in the United States and repay U.S. taxpayers for new investments made before Fiat assumes majority ownership, he said.

If Fiat and Chrysler strike a bargain, the government may consider an additional loan of up to $6 billion, Obama said. If the companies do not agree to a partnership, the government would not continue to invest in Chrysler, leaving the door open to bankruptcy.

"While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger," Obama said.

Henderson said GM will work hard to meet Obama's deadline.

"The U.S. Treasury has said that it strongly believes that a substantial restructuring will lead to a viable GM. Over the next 60 days, we will work around the clock, with all parties, to meet the aggressive requirements that have been set by the task force, and to make the fundamental and lasting changes necessary to reinvent GM for the long term."

The recession has hit the auto industry hard. In Michigan, 1 in 10 residents has been thrown out of work, as manufacturers, dealers and parts suppliers shed more than 400,000 jobs, Obama said.

And the president said more sacrifices would be needed if the companies are to become viable.

But Michigan Rep. Thaddeus McCotter, a Republican, said the companies' initial plans cut 50,000 jobs. He said he's worried about what else can be sacrificed.

McCotter said he is concerned about how retirees' pensions and benefits will fare if the automakers head into bankruptcy.